Car Loan

What is a car loan?

A car loan is also known as a hire purchase in Malaysia, and it is when you apply for a loan from a selected bank to finance the purchase of your vehicles, whether new, used, or reconditioned.

The maximum loan tenure is 9 years, with a finance margin of up to 90% or 100% (depending on the bank), with the remainder considered as your down payment.

What should I know before applying for a car loan?

There are a few things that you should know before applying for a car loan:

  • Know your credit score
  • Apply for loans during the 14-day time span to reduce negative impact
  • Get pre-approved before shopping for cars
  • Calculate costs and interest provided by different banks
  • Understand dealership financing

What are the types of car loans available in Malaysia?

  • Conventional car loan
    With a conventional car loan, you can buy any new or used car, and it will be covered by 90% financing for up to 9 years. You also have the option to purchase an unregistered reconditioned car!
  • Islamic car loan
    Islamic car loans work in a Shariah-compliant way and allow the individual to own their vehicle. This type of financing comes with high margins, which can be up to 90% or more of the car’s price.

What are the differences between a car loan and other types of loans?

A car loan is a loan that allows individuals to buy their personal vehicle. It cannot be used to act as a personal loan.

What are the eligibility criteria to apply for a car loan?

  • Malaysian citizen
  • 18 years old and above
  • Employed or self-employed at public listed companies and private limited companies
  • Sole proprietor or partnership is allowed
  • For foreigners, a local guarantor is required

How long will a car loan application process take?

The entire process takes about 1 to 2 days, and it is possible that your credit rating might be impacted by how quickly you provide documentation or when they verify your identities.

Which platform can I apply for a car loan from?

When you are purchasing a car, the agent or company will choose the best bank options for you to apply for a car loan.

Why did my car loan application get rejected by the bank?

  • Your salary did not meet the requirement
  • Poor or no credit score
  • Unhealthy debt service ratio
  • Several pending loan applications

Does a car loan generate interest?

You will need to pay interest if you apply for a car loan. The interest rate differs depending on the bank and how many years you plan to pay it back.

What are the common terms for car loan?

  • “Auto Equity Loan”

    This form of loan, also known as a title loan, uses the equity you have in your vehicle in return for your title. You get a cash loan, and the lender returns your car title once you have paid it back.

  • “Balloon payment”

    A balloon payment reduces monthly payments on a vehicle loan, but it necessitates a hefty amount after the term.

  • “Buydown”

    When buying a new or used automobile, the buyer may be given the option of lowering their car loan’s interest rate.

  • “Cashback Refi”

    A form of refinance loan that allows you to utilise the equity in your automobile to get cash while refinancing it.

  • “Credit”

    A term that refers to your credit history and can help determine whether you will be able to repay a car loan.

  • “Interest rate”

    The interest rate is the percentage that the bank will charge on top of the principal amount or the amount that must be repaid.

  • “Down payment”

    The upfront payment for a car covering a portion of the cost. It is typically 10% of the total cost of a new car and 20% of the total cost of a used car.

  • “Margin of Finance (MOF)”

    The loan amount granted by the financial institution is expressed as a percentage of the property’s value pledged to secure the loan.

  • “Loan period”

    The total number of months or years required to pay off your loan.

  • “Guarantor”

    Someone who is legally obligated to repay your loan if you cannot do so.

  • “Instalment”

    The monthly payment you must pay to the bank to pay off your loan.

  • “Default”

    The borrower violates the loan agreement, most commonly by failing to make the agreed-upon monthly payments.